Intermediate Microeconomics Tutorial 1

1.The "law of demand" is illustrated by a

A) rightward shift of the demand curve.
B) leftward shift of the demand curve.
C) movement along the demand curve.
D) Both answers A and B are correct.
Answer: C (note that the law of demand states - Other things remaining the same, the higher the
price of a good, the smaller is the quantity demanded; and the lower the price of a good, the
greater is the quantity demanded.)

2.The law of demand states that, other things remaining the same, the higher the price of a good,
the
A) smaller is the demand for the good.
B) larger is the demand for the good.
C) smaller is the quantity of the good demanded.
D) larger is the quantity of the good demanded.
Answer: C

3.When the price of a pizza decreases from $12 to $10, it is definitely the case that the
A) income effect means people buy less pizza.
B) substitution effect means people buy more pizza.
C) quantity demanded of pizza will not change.
D) None of the above answers is correct.
Answer: B
4. When the price of a good falls, the income effect for a normal good implies that people buy
A) less of that good because the relative price of the good has fallen.
B) more of that good because the relative price of the good has risen.
C) less of that good because they cannot afford to buy all the things they previously bought.
D) more of that good because they can afford to buy more of all the things they previously
bought.
Answer: D (note that there is a difference between a normal good and an inferior good; A
normal good is one for which demand increases as income increases. An inferior good is one
for which demand decreases as income increases.)

5.Each point on the demand curve reflects

A) all the wants of a given household.
B) the highest price consumers are willing and able to pay for that particular unit of a good.
C) the highest price sellers will accept for all units they are producing.
D) the lowest-cost technology available to produce a good.
Answer: B

6. Ham and eggs are complements. If the price of ham rises, the demand for eggs will
A) increase or decrease but the demand curve for ham will not change.
B) decrease and the demand curve for ham will shift rightward.
C) not change but there will be a movement along the demand curve for eggs.
D) decrease and the demand curve for eggs will shift leftward.
Answer: D (Study the difference between complementary and substitutes goods as the direction
of the demand curve shift differs; If the price of a complementary good increase (ham) so people
will demand less of it causing a decrease in the demand for eggs too (they cook them together) so
the demand curve for eggs will shift to the left)

7.A change in which of the following shifts the demand curve for hamburgers?
A) an increase in the price of the meat used to produce hamburgers
B) an increase in the price of a hamburger
C) a fall in the price of french fries, a complement for hamburgers
D) an increase in the number of hamburger restaurants
Answer: C

8.The quantity supplied of a good is

A) the same thing as the quantity demanded at each price.
B) the amount that the producers are planning to sell at a particular price during a given time
period.
C) equal to the difference between the quantity available and the quantity desired by all
consumers and producers.
D) the amount the firm would sell if it faced no resource constraints.
Answer: B

10. Which of the following decreases the supply of restaurant meals?

A) Waiters get a pay raise.
B) Consumers' incomes increase and restaurant meals are a normal good.
C) Consumers' incomes decrease and restaurant meals are a normal good.
D) The price of movies, a complement to restaurant meals, falls.
Answer: A

11.Which of the following increases the supply of a product?

A) a fall in the price of the product
B) a smaller number of sellers producing the product
C) an increase in foreign imports of the product
D) higher taxes imposed upon producers of the product
12.The figure above shows the market for candy. People become more concerned that eating
candy causes them to gain weight, which they do not like. As a result, the
A) demand curve shifts from D2 to D1 and the supply curve does not shift.
B) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
C) demand curve shifts from D2 to D1 and the supply curve shifts from S2 to S1.
D) demand curve does not shift, and the supply curve shifts from S1 to S2.
Answer: A
13.The above figure shows the market for oil. Because of the development of a new deep sea
drilling technology the
A) demand curve shifts from D1 to D2 and the supply curve does not shift.
B) demand curve shifts from D1 to D2 and the supply curve shifts from S1 to S2.
C) demand curve does not shift, and the supply curve shifts from S2 to S1.
D) demand curve does not shift, and the supply curve shifts from S1 to S2.
Answer: D
Price Price
Quantity Quantity
(dollars per (dollars per
demanded supplied
disc) disc)
4 36,000 4 4,000
8 32,000 8 8,000
12 28,000 12 12,000
16 24,000 16 16,000
20 20,000 20 20,000
24 16,000 24 24,000
28 12,000 28 28,000
32 8,000 32 32,000
36 4,000 36 36,000
14.The above table gives the demand and supply schedules for Blu-ray discs. If the price of a
Blu-ray disc is $8, there is a ________ and the price of a compact disc will ________.
A) shortage; rise
B) shortage; fall
C) surplus; rise
D) surplus; fall
Answer: A (in case the quantity demanded is more than the quantity supplied, there is a shortage
in supply of a good, consequently the price will adjust and increase to clear the shortage)

15.The above table gives the demand and supply schedules for Blu-ray discs. Suppose that the
price of a Blu-ray disc player increases, resulting in the demand for Blu-ray discs decreasing by
8,000 units at all prices. What are the new equilibrium quantity and equilibrium price of Blu-ray
discs?
A) 8,000 and $8
B) 16,000 and $16
C) 20,000 and $20
D) 28,000 and $28
Answer: B
16.Beef and leather belts are complements in production. If people decrease their demand for
beef for health concerns, the demand curve for beef shifts leftward, the result in the market for
leather belts will be a
A) lower equilibrium price for a leather belt because there is an increase in the supply of leather
belts.
B) lower equilibrium price for a leather belt because there is a decrease in the supply of leather
belts.
C) higher equilibrium price for a leather belt because there is a decrease in the supply of leather
belts.
D) higher equilibrium price for a leather belt because there is an increase in the supply of leather
belts.
Answer: D
17.If the price elasticity of demand for a good is -2, and the price increases by 10%, what will be
the percentage change in quantity demanded?
a) -20%
b) -5%
c) +5%
d) +20%
Answer: A
18. If the price of a good increases from $10 to $12 and the quantity demanded falls from 100 to 80, what
is the price elasticity of demand (using the midpoint method)?
a) -0.5
b) -1
c) -1.5
d) -2
Answer: b) (Midpoint method: %ΔQ = (80-100)/((80+100)/2) = -20/90 = -2/9;
%ΔP = (12-10)/((12+10)/2) = 2/11; PED = (-2/9)/(2/11) = -11/9 ≈ -1)
19. If the elasticity of supply is 1, a 5% decrease in price will lead to a:
a) 5% increase in quantity supplied.
b) 5% decrease in quantity supplied.
c) 1% decrease in quantity supplied.
d) No change in quantity supplied.

Answer: B
20.The formula for income elasticity of demand is:
a) % change in quantity demanded / % change in price
b) % change in quantity supplied / % change in price
c) % change in quantity demanded / % change in income
d) % change in quantity supplied / % change in income

Answer: B
21. If the income elasticity of demand for a good is zero, the good is:
a) Perfectly income elastic
b) Perfectly income inelastic
c) Income elastic
d) Income inelastic

Answer: A
22: The supply of a good is more elastic when
a. it is easy to produce more at the same cost
b. it is made from rubber
c. it is difficult to produce more at the same cost
d. the marginal cost is equal to the price

Answer:A